Debra Goldman’s Consumer Republic

It is a tribute to the magical powers of the word “deregulation” and its rhetorical companion “consumer choice”—not to mention the millions spent by the utility lobby over the last five years—that deregulation of electricity has come as far as it has. Not only are about half the states in some stage of the process, we’ve been sold on the concept based on our happy experience with other deregulated industries—like airlines.

But if the wonderful world of contemporary airline travel isn’t enough to make us skeptical of electricity deregulation, the energy debacle in California might be. At this writing, the state’s largest utilities are on the brink of insolvency.

Defenders of the faith argue that whatever Gov. Gray Davis might say, deregulation is not at fault for California’s plight. The problem is the byzantine approval process, the not-in-my-back-yard whiners and the obstructionist tree-huggers that have kept utility companies from building much-needed plants. Or it’s price caps that have scared investors. Look at Pennsylvania or Wisconsin, they counsel. Wiser politicians have created conditions in which deregulation can succeed.

On the other hand, one could look at California cities such as Los Angeles and Sacramento. Their power is supplied by municipal utilities. These publicly owned power authorities were not required to sell off their generation plants by the deregulation act of 1996, as the investor-owned utilities were. They remain old-fashioned vertical monopolies.

Guess what? There is no energy crisis in these cities. In fact, the local power authorities there are making a killing selling their excess juice to the rest of the state.

Defenders of deregulation insist the real problem in California is a classic imbalance between supply and demand. But then, deregulation is a major cause of that, too. California utilities stopped building power plants about the time deregulation became part of the policy debate. It created the uncertain climate that every wise investor flees.

That is, it made no sense for utilities to build power plants only to be required to sell them off down the road. So they didn’t, even as the population swelled.

In other words, California was not broke until they fixed it. The under-lying problem facing deregulation supporters is this: There is no popular constituency for it.

Investor-owned utilities looking for a way to recoup their squandered investment in white-elephant nuclear power plants wanted deregulation. Industrial concerns that suck up vast megawatts wanted it. Free-market ideologues wanted it. Consumers did not.

They don’t know from generation, transmission and distribution—the three components of power supply—let alone ISOs, stranded costs and other arcania of the electricity market. And they don’t want to know. For most us, if the light goes on when we flip the switch, we’re happy.

Remember the old days of the long-distance wars, when consumers was battered daily by annoying ads and dinner-time telemarketing calls? We were told this marketing barrage was necessary because long-distance was a “low interest” category. Without the millions spent urging consumers to switch carriers, no one would bother.

Compared to electricity—a “no interest” consumer category—long distance is as riveting as Temptation Island. A telling measure of the popular “demand” for deregulated electricity is that in the first six months of deregulation in California, 25,000 customers, out of a market of 9.9 million, switched power suppliers.

Indeed, the only time most of us think about electricity is when we lose it or the price goes up. If consumers have remained passive in the face of electricity deregulation, it is because we’ve been promised that the infallible genius of the marketplace will protect our pocketbooks.

Yet now we see in California that the invisible hand can drop the ball.

Not only can prices go up, they can do so dramatically and without warning. No more planning for the 3.5 percent rate hike that the public utility commission debated for months. Just read the bill and weep.

California’s sad plight has awakened all consumers to a little-considered consequence of utility deregulation: uncertainty. And uncertainty and electricity don’t mix. We are simply too dependent on it.

Americans don’t want to worry about raiding the food budget to pay next month’s bill. Or worse, live under the threat of doing without power because it’s not in a corporation’s interest to generate the juice.

Isn’t that why vertical monopolies were created in the first place?